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United States v. Butler

April 27, 2010

UNITED STATES OF AMERICA,
v.
ERIC BUTLER, DEFENDANT.



The opinion of the court was delivered by: Ramon E. Reyes, Jr. United States Magistrate Judge

MEMORANDUM & ORDER

Introduction

On August 17, 2009, Eric Butler was convicted by a jury on all counts of a three-count superseding indictment charging him with conspiracy to commit securities fraud, securities fraud, and conspiracy to commit wire fraud. (Dkt. 248; Transcript of Criminal Cause for Trial ("Tr."). 3405--07.) The Honorable Jack B. Weinstein continued Butler's bail and, upon Butler's sentencing on January 22, 2010, referred to me any motions concerning revocation of Butler's bail pending appeal. (Tr. at 3409--22; Transcript of Sentencing at 85.) On February 22, 2010, the government moved to remand Butler pending appeal. (Dkt. 368). For the reasons which follow, the government's motion is granted.

Background

The Court assumes familiarity with the facts of the case based on the record of proceedings before Judge Weinstein, and as stated in the Sentencing Statement of Reasons Pursuant to 18 U.S.C. § 3553(c) (2). (Tr.; Dkt. 341.)

During Butler's three-week trial, the government presented evidence pertaining to six former clients of Butler (collectively, "Clients"), and established that while working for Credit Suisse Securities (USA) LLC., (Tr. at 2022), between 2004 and August of 2007, Butler and his co-defendant Julian Tzolov promised to invest the Clients' funds in student-loan Auction Rate Securities ("ARS"), but instead invested in ARS backed by non-student-loan assets, such as mortgages and corporate debt. (See, e.g., Tr. at 438--529, 1732--1821 (Victor Matfield testifying on behalf of Rangold Resources, Ltd. (Jersey Islands, United Kingdom, West Africa)), 613--852, 860--978 (Bruce Richard Parker testifying on behalf of Potash Corporation of Saskatchewan (Canada)), 979--1090, 1098--1214 (Maria Simons testifying on behalf of Copa Airlines (Panama)), 1215--1313, 1327--1503, 1516--1603 (John Steven Turley Stout testifying on behalf of Roche International (Switzerland, Bermuda)), 1605--1714 (Sarah-Jane Chilver-Stainer testifying on behalf of GlaxoSmithKline plc (United Kingdom)), 1824--1958 (Alan Greenfield testifying on behalf of GlaxoSmithKline plc (United Kingdom)).)

The evidence showed that the Clients sought to invest in student-loan ARS because they perceived such ARS as secure and liquid investments, the underlying assets of which were guaranteed by the United States Department of Education. (E.g., Tr. at 447--56, 622, 627, 629, 987, 1223--24, 1620--22, 1827.) The government established that in various communications with the Clients, Butler and Tzolov misrepresented the securities they bought on the Clients' behalf. (E.g., Tr. at 1869--71, 1894--95, 2165--67, 2154--56, 2165--67, 2279, 2304--07, 2325--26, 2433--34, 2466--72, 3073--74, 3080--81.)

After pleading guilty, Tzolov testified pursuant to a cooperation agreement. (Tr. at 2143--2283, 2303--2523, 2548--2613, 2614--21 (discussing the agreement, Gov't Ex. 3500-JT-11), 2622--2766, 2782--3003, 3122--3173.) He admitted that at the time of the fraud, he and Butler understood that student-loan- and non-student loan-backed securities differed. (Tr. at 2149--54.) Tzolov also stated that he and Butler engaged in this scheme because they earned higher commissions on non-student-loan products and because student-loans ARS were not available at all times. (Tr. at 2153--54.)

During Tzolov's testimony, the government played piece-by-piece a tape of a telephone call between Butler, Tzolov, and Giuseppe Notarnicola, an employee of Butler's client in Switzerland, STMicroelectronics ("Notarnicola Tape"). (Tr. at 2261--83, 2303--50.) In this conversation, Notarnicola confronted Butler and Tzolov regarding the securities that they purchased on STMicroelectronics's behalf and accused them of violating various United States securities laws. (Id.) In his testimony, Tzolov admitted that in violation of the client's mandate to purchase student-loan ARS, he and Butler had invested $400 million of the STMicroelectronics's funds in non-student-loan securities. (Id.)

In August 2007, the auctions for non-student-loan securities failed, and the Clients began to learn that Butler and Tzolov purchased non-student-loan ARS on the Clients' behalf. (Tr. at 682, 1039--40.) According to the government's computation, the total principal amount of the Clients' investment in non-student-loan ARS at that time exceeded $1.12 billion. (Dkt. 320, Government Sentencing Memorandum at 15--16.)

On August 17, 2009, the jury convicted Butler on all counts. (Dkt. 248.) On January 22, 2010, Judge Weinstein sentenced Butler to five years of imprisonment and three years of supervised release, and ordered him to pay a fine of five million dollars. (Dkt. 344.) On February 9, 2010, Butler filed a Notice of Appeal. (Dkt. 365.) On February 22, 2010, the government moved to remand Butler pending appeal. (Dkt. 368). On March 5, 2010, Butler opposed the motion. (Dkt. 386.)

Discussion

I. Applicable Legal Standards

A. Statutory Presumption in Favor of Detention

The court "shall order that a person who has been found guilty of an offense and sentenced to a term of imprisonment, and who has filed an appeal... be detained, unless" it finds by clear and convincing evidence that the person is not likely to flee or pose a danger to the safety of any other person or the community... and... that the appeal is not for the purpose of delay and raises a substantial question of law or fact likely to result in (i) reversal, (ii) an order for a new trial, (iii) a sentence that does not include a term of imprisonment, or (iv) ...


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